What You Need to Know: Retirement Benefits

Most employees can draw those benefits starting at age 62 with five years of service, age 60 with 20 years or age 55 with 30 years. Special age and service combinations apply in certain situations. Like the Social Security benefit, this pension is increased annually by cost of living adjustments, although somewhat reduced. Also, survivor benefits are available, at the price of a reduced annuity to the retiree.

The third leg is the TSP, a 401(k)-style program. All employees covered by FERS automatically get an account and the government pays an amount equal to 1 percent of their salary into it even if they do nothing. Employees may make annual investments up to the same limits set by the IRS applying to all retirement investors¿in 2008, $15,500, in 2009, $16,500. The investments come from pre-tax payroll dollars and grow tax-free until withdrawn.

For FERS employees who invest their own money, the government will match the first three percent of salary dollar-for-dollar, and the next two percent at 50 cents on the dollar. So, by investing, employees can effectively force the government to give them a raise. Participants can allocate their money among a government bond fund, a government/corporate bond fund, a large company stock fund, a small and mid-sized company stock fund or an international stock fund. The TSP also offers five "lifecycle" funds that automatically split investments among those funds according to ratios considered appropriate for the investor's age.

Participants can change the level of their investments or the allocation of their money pretty much at any time, with some minor restrictions. When they leave government, either for another job or to retire, they can leave their TSP accounts in place and continue to manage them, roll the money over into an individual retirement account or other retirement savings plan, or withdraw the money as a lump-sum, as monthly payments or as an annuity. The TSP Web site, www.tsp.gov, has a calculator for estimating account growth and how that would translate into payouts.

Chances are, by the time you reach the point of making that decision, retirement will be far from the last thing on your mind.